El Salvador has formally broken off diplomatic relations with Taiwan and established full ties with China, leaving Taipei with a dwindling list of allies.

At a meeting with his Salvadoran counterpart in Beijing on Tuesday, Chinese Foreign Minister Wang Yi praised the Latin American state's decision to "recognise there is one China in the world".

"This further goes to show the One China policy is in line with international norms, is the correct choice... and is the basis of China's relation with any country," he said.

After signing a document with Wang establishing relations, Foreign Minister Carlos Castaneda said his country had made a "strategic decision" and took the "correct and beneficial path for the people of both nations".

The decision leaves the number of states that recognise Taiwan at just 17.

Taiwan broke off ties before the signing ceremony, when El Salvador's intentions became clear.

"Losing (a) diplomatically is not an isolated incident. It is part of China's string of sabre rattling and intimidation," Taiwan President Tsai Ing-wen said at a press conference in Taipei.

The news came just after Tsai, who is trying to raise Taiwan's international profile, wrapped up a Latin American tour which included stops in the United States, which drew criticism from China. She visited allies Belize and Paraguay during the trip.

Taiwan's foreign minister Joseph Wu said Taipei "will not engage in dollar diplomacy with China", adding that El Salvador had been asking for "huge funding" for a port development project, which Taiwan was unwilling to give because it would leave both countries in debt.

El Salvador's decision comes amid a drive by Beijing to cut off diplomatic support for Taiwan.

In the past year Burkina Faso and the Dominican joined China's side, and in previous years Panama and the tiny African state of Sao Tome have also done the same.

Taiwan and China have been engaged for years in a diplomatic tug-of-war in developing countries.

Economic support and other incentives are often used as bargaining chips for diplomatic recognition